SALEM – Mid-Southern Bancorp, Inc. (the “Company”) (NASDAQ: MSVB), the holding company for Mid-Southern Savings Bank, FSB (the “Bank”), reported net income for the second quarter ended June 30, 2021, of $397,000 or $0.13 per diluted share compared to $342,000 or $0.10 per diluted share for the same period in 2021.
For the six months ended June 30, 2021, the Company reported a net income of $775,000 or $0.26 per diluted share compared to $727,000 or $0.22 per diluted share for the same period in 2020.
In light of the events surrounding the COVID19 pandemic, the Company is continually assessing the effects of the pandemic on its employees, customers, and communities. In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) were enacted. The CARES Act contains many provisions related to banking, lending, mortgage forbearance, and taxation, and the Company supported its customers through the SBA Paycheck Protection Program (“PPP”), loan modifications, and deferrals and fee waivers on early withdrawal of certificates of deposit due to
hardship.
The deadline for PPP loan applications for the first round was extended to August 8, 2020, and during this round in 2020, the Bank-funded 29 PPP loans totaling $474,000. As of June 30, 2021, all loans received full forgiveness
from the SBA.
In late December 2020, the Emergency Coronavirus Relief Act of 2020 (the “Relief Act”) was enacted. The Relief Act extended certain provisions of the CARES Act and allotted $284 billion to the SBA for a second round of PPP loans. The deadline for PPP loan applications for the second round was extended from March 31, 2021, to May 31, 2021. For the six months ended June 30, 2021, the Bank has funded 43 PPP loans totaling $815,000 as part of this second round, and 40 loans with a principal balance of $771,000 remain outstanding as of June 30, 2021. As of June 30, 2021, three loans with a principal balance of $44,000 had received full forgiveness from the SBA.
While the ultimate impact of the crisis is difficult to predict, management believes the Company is well-capitalized and
has the financial stability to continue to responsibly serve its customers and communities during this unprecedented time.
Income Statement Review
Net interest income after provision for loan losses increased $161,000, or 10.4%, for the quarter ended June 30, 2021, to $1.7 million as compared to the quarter ended June 30, 2020. Total interest income increased $64,000, or 3.5 percent, when comparing the two periods, due to an increase in the average balance of interest-earning assets partially offset by a decrease in the yield earned on interest-earning assets. The average balance of interest-earning assets increased to $237.5 million for the quarter ended June 30, 2021, from $205.0 million for the quarter ended June 30, 2020, due primarily to increases in investment securities, partially offset by decreases in loans receivable and interest-bearing deposits with banks. The average tax-equivalent yield on interest-earning assets decreased to 3.33% for the quarter ended
June 30, 2021, from 3.67 percent for the quarter ended June 30, 2020, due primarily to a decrease in market interest rates, driven by decreases in the targeted federal funds rate in response to the COVID19 pandemic.
Total interest expense decreased $82,000, or 32.9 percent, when comparing the two periods due to a decrease in the average cost of interest-bearing liabilities, partially offset by an increase in the average balance of interest-bearing liabilities. The average cost of interest-bearing liabilities decreased to 0.39% for the quarter ended June 30, 2021, from 0.70% for the same period in
The average balance of interest-bearing liabilities increased to $171.3 million for the quarter ended June 30, 2021, from $142.0 million for the same period in 2020, due primarily to an increase in the number and balance of savings and interest-bearing demand deposit accounts, partially offset by a decrease in time deposits. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread decreased to 2.94% from 2.97 percent, and the net interest margin decreased to 3.05 percent from 3.19 percent for the quarters ended June 30, 2021, and 2020, respectively.
Net interest income after provision for loan losses increased $243,000, or 7.7 percent, for the six months ended June 30, 2021, to $3.4 million as compared to $3.2 million for the six-month period ended June 30, 2020. Total interest income decreased $4,000, or 0.1 percent when comparing the two periods, due to a decrease in the yield earned on interest-earning assets partially offset by an increase in the average balance of interest-earning assets. The average tax-equivalent yield on interest-earning assets decreased to 3.38 percent for the six months ended June 30, 2021, from 3.83 percent for the six months ended June 30, 2020, due primarily to a decrease in market interest rates, driven by decreases in the targeted federal funds rate in response to the COVID19 pandemic. The average balance of interest-earning assets increased to $233.2 million for the six months ended June 30, 2021, from $202.7 million for the six months ended June 30, 2020, due primarily to increases in investment securities, partially offset by decreases in loans receivable and interest-bearing deposits with banks. Total interest expense decreased $175,000, or 34.2 percent, when comparing the two periods due to a decrease in the average cost of interest-bearing liabilities, partially offset by an increase in the average balance of interest-bearing liabilities. The average cost of interest-bearing liabilities decreased to 0.40 percent for the six months ended June 30, 2021, from 0.73 percent for the same period in 2020. The average balance of interest-bearing liabilities increased to $167.2 million for the six months ended June 30, 2021, from $140.5 million for the same period in 2020, due primarily to an increase in the number and balance of savings and interest-bearing demand deposit accounts, partially offset by a decrease in time deposits. As a result of the changes in interest-earning assets and interest-bearing liabilities, the interest rate spread decreased to 2.98 percent from 3.10 percent, and the net interest margin decreased to 3.09 percent from 3.32 percent for the six-month periods ended June 30, 2021, and 2020, respectively.
Noninterest income increased $42,000, or 14.8 percent, for the quarter ended June 30, 2021, as compared to the same period in 2020, due primarily to increases of $75,000, $37,000, and $34,000 in brokered loan fees, deposit account service charges, and ATM and debit card fee income, respectively, partially offset by a reduction of $104,000 in net gain on sales of securities available for sale. Proceeds from sales of securities available for sale were $4.5 million for the quarter ended June 30, 2020. No available for sale securities have been sold during the quarter ended June 30, 2021.
Noninterest income increased $144,000, or 31.6 percent, for the six months ended June 30, 2021, as compared to the same period in 2020, due primarily to increases of $136,000, $72,000, and $38,000 in brokered loan fees, ATM, and debit card fee income and deposit account service charges, respectively, partially offset by a reduction of $104,000 in net gain on sales of securities available for sale. Proceeds from sales of securities available for sale were $4.5 million for the six months ended June 30, 2020. No available for sale securities have been sold during the six months ended June 30, 2021.
Noninterest expense increased $175,000, or 12.0 percent, for the quarter ended June 30, 2021, as compared to the same period in 2020. The increase was due primarily to increases in compensation and benefits of $110,000, data processing fees of $32,000, occupancy and equipment expenses of $25,000, deposit insurance premiums of $15,000, and other expenses of $27,000, partially offset by decreases in professional fees of $35,000.
Noninterest expense increased $401,000, or 14.3 percent, for the six months ended June 30, 2021, as compared to the same period in 2020. The increase was due primarily to increases in compensation and benefits of $245,000, occupancy and equipment expenses of $50,000, deposit insurance premiums of $30,000, directors’ compensation expense of $20,000, data processing fees of $17,000, and other expenses of $44,000 partially offset by decreases in professional fees of $17,000.
The Company recorded an income tax expense of $6,000 for the quarter ended June 30, 2021, compared to an expense of $33,000 for the same period in 2020. Income tax expense for the six months ended June 30, 2020, was $23,000 compared to $85,000 for the same period in 2020 resulting from a reduction in our effective tax rate to 2.9% for 2021 compared to 10.5 percent for 2020. The decrease in the effective tax rate is due largely to increased tax-exempt investment income proportionate to overall pre-tax income.
Balance Sheet Review
Total assets as of June 30, 2021, were $249.2 million compared to $235.4 million on December 31, 2020. Increases in cash and cash equivalents and investment securities of $8.9 million and $7.3 million, respectively were partially offset
by a $2.4 million decrease in net loans. Investment securities increased due primarily to $13.0 million in purchases of
available for sale investment securities, partially offset by $4.8 million in scheduled principal payments and maturities of mortgage-backed and tax-exempt securities. The decrease in net loans was due primarily to decreases of $2.1 million in commercial real estate loans and $2.4 million in one-to-four family residential loans, partially offset by increases in commercial business loans and commercial real estate construction loans of $2.3 million and $1.1 million, respectively.
Total liabilities, comprised mostly of deposits, increased $13.7 million to $200.0 million as of June 30, 2021. The increase was due primarily to a $15.3 million increase in interest-bearing deposits, partially offset by a decrease of $1.0 million in borrowings from the Federal Home Loan Bank of Indianapolis. Credit Quality
Non-performing loans decreased to $912,000 on June 30, 2021, compared to $1.3 million on December 31, 2020, or 0.8 percent and 1.1 percent of total loans, respectively. On June 30, 2021, $750,000 or 82.3 percent of non-performing loans were current on their loan payments. On June 30, 2021, non-performing troubled debt restructured loans totaled $175,000. There was no foreclosed real estate owned on either June 30, 2021, or December 31, 2020.
Based on management’s analysis of the allowance for loan losses, the Company did not record a provision for loan losses for the quarter ended June 30, 2021, compared to a $15,000 provision for loan losses for the same period in 2020.
The provision for the current quarter reflects expected credit losses based upon the conditions that existed as of June 30, 2021.
The Company recognized net recoveries of $22,000 for the quarter ended June 30, 2021, compared to net
recoveries of $1,000 for the same period in 2020.
The Company did not record a provision for loan losses for the six months ended June 30, 2021, compared to a $72,000 provision for loan losses for the same period in 2020. The Company recognized net recoveries of $23,000 for the six months ended June 30, 2021, compared to net charge-offs of $14,000 for the same period in 2020. The allowance for loan losses totaled $1.6 million, representing 1.4 percent of total loans on both June 30, 2021, and December 31, 2020.
The allowance for loan losses represented 176.8 percent of non-performing loans on June 30, 2021, compared to 126.5 percent on December 31, 2020.
Capital
On May 23, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act passed by Congress (the “Act”). The Act contains a number of provisions extending regulatory relief to banks and savings institutions and their holding companies. Effective January 1, 2020, a bank or savings institution electing to use the Community Bank Leverage Ratio (“CBLR”) will generally be considered well-capitalized and to have met the risk-based and leverage capital requirements of the capital regulations if it has a leverage ratio greater than 9.0 percent (adjusted to 8.0 percent effective April 1, 2020, and 8.5 percent effective January 1, 2021).
On October 9, 2020, the Office of the Comptroller of the Currency along with the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, published a final rule, effective November 9, 2020, implementing a temporary change to the CBLR framework pursuant to the CARES Act, providing a graduated increase to the 9.0 percent requirement as established under the final rule published in 2019. To be eligible to elect to use the CBLR, the bank or savings institution also must have total consolidated assets of less than $10 billion, off-balance sheet exposures of 25.0 percent or less of its total consolidated assets, and trading assets and trading liabilities of 5.0 percent or less of its total consolidated assets, all as of the end of the most recent quarter. The Bank elected to use the CBLR effective January 1, 2020. On June 30, 2021, the Bank was considered well-capitalized under applicable federal regulatory capital guidelines with a CBLR of 16.3 percent.
The Company’s stockholders’ equity increased to $49.1 million on June 30, 2021, from $49.0 million on December 31, The increase was due primarily to net income of $775,000, partially offset by a decrease in the accumulated other
comprehensive income, net of tax, of $580,000. On June 30, 2021, a total of 63,750 shares remain authorized for future
purchases under the current stock repurchase plan.
About Mid-Southern Bancorp, Inc.
Mid-Southern Savings Bank, FSB is a federally chartered savings bank headquartered in Salem, Indiana, approximately 40 miles northwest of Louisville, Kentucky. The Bank conducts business from its main office in Salem and through its branch offices located in Mitchell and Orleans, Indiana and loan production offices located in New Albany, Indiana, and Louisville, Kentucky.
